What Are Your Options for Withdrawing Locked-in Funds?

If you have pension funds from a previous employer in a registered locked-in account, there are a number of income options that you need to consider, if you’re retiring.

Reviewing your choices upon retirement

You have several retirement income/fund options, depending on the jurisdiction of the locked-in funds.

It’s important to note that with ordinary registered retirement income fund (RRIF) there is a minimum annual amount you must withdraw but no maximum limit. The locked-in options below, however, impose a maximum cap on withdrawal.

Life income fund (LIF): The amount that can be withdrawn each year is subject to a minimum and maximum. It is a percentage of the account balance as of January 1 and is based on the age of the annuitant.

Locked-in retirement income fund (LRIF): As with a LIF, the amount that can be withdrawn each year is subject to a minimum and maximum. The minimum is also a percentage of the account balance as of January 1 and is based on the age of the annuitant. The maximum is usually the greater of the investment earnings in the previous calendar year or a calculation based on the age of the annuitant.

Prescribed registered retirement income fund (PRIF): The amount that can be withdrawn each year is subject to a minimum, but no maximum. A PRIF has the same rules as a RRIF.

Life annuity: The income amount will be based on the actuarial calculations by the insurance company. The locked-in funds will be exchanged for a guaranteed income for life for the annuitant, and possibly a reduced amount continuing on for the spouse’s lifetime as well.

With the exception of the life annuity, you retain control over how the funds are invested within locked-in RRSP/LIRA or the retirement income options.

Unlocking locked-in accounts before retirement—special provisions

Locked-in plans generally do not permit any withdrawals before retirement age, but some jurisdictions may allow some or all of the funds to be unlocked if you have a shortened life expectancy, are experiencing financial hardship or are a non-resident.

Some provinces also allow for some or all of the funds to be unlocked at retirement. It is important that these provisions are explored prior to transferring the funds into a retirement income option.